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The Value of a Non-Compete Agreement

Employee Attrition

As you venture into the service business industry you will find that many of the employees you hire will not last the test of time. The transient nature of service business employees is a serious issue in trying to build your soft washing business. Employees will likely fit into three groups. One, loyal & hard working. Two, lazy with poor work ethic. Three, selfish being those who think they can do it better. Unfortunately, that means YES two out of every three employees you hire will not last in your employment.

It has been said “locks are for keeping honest people honest”. The thought behind that is that people who want to break the rules will find a way to break the rules, good people are tempted to break the rules but a lock is a small reminder of the consequences of that decision. Employees should be GREAT right off the start, right? Not usually. That is why we need guiding documents and communications at the onset of the employee / employer relationship to clearly communicate the requirements of the job and the protection of company resources, intellectual property and other employees. So that if one day that employee has to be freed from their job there was clear communication as to why that was needed as well as how the employee will be held accountable upon their leaving.

What is a non-compete agreement?

A non-compete agreement is a legally binding contract that guides the employee / employer relationship after the job duty has been terminated. It often covers items like, employee starting a competitive business against the current or past employer, employee going to work for a competitor, employee trying to poach or lure other employees away from the employer and employee soliciting business from the employer’s customer base. It is generally confined by geographical area as well as has a time limit before employee can in fact compete for business etc.

What is a confidentiality agreement?

A confidentiality agreement is usually attached to or a part of a non-compete or a part of an overall employment agreement that holds the past employee confidential in what they can share about your business operations. Things that you can have as items protected in this agreement are, customer databases, company training information, tools or techniques, processes, business systems, business practices, business history, documents, sales techniques or any other competitive advantage you have created that you protect from the “outside world”.

Why have these in place?

Good employees need that LOCK. Temptation is all around us today and especially your employees can fall prey to negative influences that may cause them to become discontent with their job or share information with a competitor. These documents curtail these temptations and make it easier for employees to remain content with their job and not become transient.

Unproductive employees need to know you will not tolerate spending a lot of time and money training them only for them to leave you six months in and now bounce to a competitor. Many times for fifty cents an hour raise, based upon the new skills and abilities you have invested into them. It is not right for them to now use your assets and investment to market themselves to the highest bidder. Often times they will also drag other employees away with them to a competitive company or share confidential information as well.

Self-centered, know it all employees will often get an attitude that you as the owner are foolish and will use circumstantial-ethics and self-justification to leave and start their own company. A carefully written non-compete/confidentiality agreement will block them from starting another company but more than that keep them from poaching employee and customers.

The legalities of these kind of agreements.

Most state courts in the US will enforce a non-compete agreement for up to two years and a confidentiality agreement for up to seven. Even in cases of hardship courts across the country have case law where they have found that employers with protectable assets and unique training programs and business systems have a right to hold an employee to a non-compete agreement for at least two years. The bigger deal is that a confidentiality agreement is even more enforceable and recognized even in states where the courts are more liberal towards the employee.

A confidentiality agreement virtually locks an employee down to being an owner operator. This because that past employee cannot share with another any systems, processes, sales techniques, customer knowledge, product knowledge, training and any other item considered intellectual property with any other person for seven years. This puts the burden of proof back on the past employee to prove in court that any and all of the above they are using in their company that could be considered confidential and property of the previous employer is completely new and created by the employee after the time of termination from employment.

You do however need to have any agreement you create reviewed by a labor law attorney and written specifically for the state you are operating within.

Enforcing these agreements.

When you discover a past employee is in violation of his non-compete or confidentiality agreement you must send the employee a cease and desist letter. That is basically a letter telling them you are aware of their activity and you are putting them on notice to stop of your next step will be initiating a law suit. You also must make their new employer aware of their agreement and send a copy of the agreement to the new employer. Generally, this one step will end their activity. Most people don’t want to fight these matters..

If they do not cease their activity that is violating their agreement you will need to file a law suit. This is not costly and after a process server or sheriff visits their home and serves them with the law suit they generally comply.

If the sheriff visiting them serving them with a law suit doesn’t deter them from their activity you can have your attorney file an emergency injunction with the court for the judge to demand them to cease operation until the matter can be brought before the court for a decision.

Equal enforcement of these agreements.

It is very important for you to follow these steps with every single employee you have. If you don’t have every single employee sign these agreements you create a hole in your defense because you have shown bias. Also, you must equally enforce the agreements. Every employee that violates must receive the same cease and desist letters and following steps as necessary equally or you again show a bias and cannot defend your agreement.

Non-compete and confidentiality agreements can be a great tool to protect your company, business and assets from employee issues. Remember these are not used to LORD over employees or create a hostile work environment. These are great communication tools that guide the separation from employment and help each party involved to protect their interest and respect each others space.

In the end if a potential employee is not comfortable with these agreements it does give you a glimpse into what may be in their hearts or how the employment relationship may go if you enter it.


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